Ryman Hospitality Properties

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

Ryman Hospitality Properties is a real estate investment trust (REIT) specializing in upscale, group-oriented lodging assets, primarily convention-center hotels and resorts.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview and Moat Analysis

Ryman Hospitality Properties (RHP) operates in the hospitality sector, focusing on upscale, group-oriented properties. The company’s main business is owning and operating hotels and resorts, primarily the Gaylord Hotels brand, designed to cater to large events and conventions.

Revenue Distribution

RHP’s revenue streams can be broadly categorized as follows:

  • Hospitality Segment: This includes revenues from room rentals, food and beverage sales, and other hotel-related activities. This segment is the core revenue driver for the company and generates large revenue volumes.
  • Entertainment Segment: This segment consists of revenues from media-focused properties like the Grand Ole Opry and Opryland attractions. These revenue sources tend to be more stable and less cyclical.
  • Corporate and Other: This segment consists of income from corporate operations, and other smaller revenue sources.
  • Lodging Industry Rebound: The hospitality industry is still showing strong signs of recovery after the COVID pandemic, with both leisure and business travel demand improving. However, business travel is still not fully back to normal.
  • Inflationary pressures: The industry has also had to deal with the recent inflationary pressures, especially labour costs which may have a significant impact on the margins.
  • Group Travel Demand: There is still growth in group-oriented travel, especially as companies hold in person meeting after the pandemic. Companies are now having conferences to bring the company under the same roof and hence hotels with big convention centers tend to benefit a lot.
  • Technology Adoption: The hospitality industry is adopting new technologies in areas such as booking systems and customer relationship management. Companies also need to embrace social media as well as customer engagement channels to reach and engage customers.
  • Sustainability and ethical considerations: Companies are now facing increased scrutiny for their ethical policies, as well as sustainability goals.

Competitive Landscape

  • Competition: The hospitality industry is very competitive, with companies having to compete with other brands as well as low cost operators like Airbnb. A significant portion of their competition is coming from other large hospitality chains and independent hotels as well as short-term rental platforms.
  • Differentiation: Ryman Hospitality has attempted to differentiate themselves through large scale events, as well as integrated entertainment operations.
  • Economic Moat: Ryman has a moderate moat, primarily arising from their ownership of unique, large-scale properties that can accommodate group-oriented events and conventions and their locations. These include specific markets that allow them to be uniquely positioned.

What Makes RHP Different?

RHP differentiates itself through:

  • Unique Properties: Large-scale, high-end hotel and resorts. The company’s strategy is focused on operating hotels and resorts with large convention centers which gives it an advantage when compared to other hotel chains.
  • Entertainment Focus: They also incorporate entertainment options that include attractions like the Grand Ole Opry, which makes them a unique tourist destination in themselves.
  • Geographical Concentration: The company is also focused in certain geographic areas which gives them density benefits.

Moat Rating Justification: 2/5

While RHP possesses several differentiating factors, it’s moats are not as strong as a few of its competitors.

  • Brand Strength: RHP’s Gaylord brand does have considerable brand strength in the group oriented hotel space and can command a premium, but it’s not as high as a few luxury hotels like a Four Seasons or similar. However, the brand is quite strong in attracting meetings and conventions.
  • Switching Costs: While the company does have a lot of bookings through repeat customers and repeat clients, they do not have significant switching costs from one hotel chain to another. The barriers to entry are lower as well because setting up a convention center does not require a huge R&D division, meaning their competitive edge is not as strong as other moat sources.
  • Scale: RHP does enjoy economies of scale, due to their high inventory hotels, they have more negotiating power than many of the small hotels in the industry but this is easily replicable. Their large convention centers are not as easily replicable, and are very rare to come by in a city, but RHP does have a competitive advantage in this regard.
  • Intangible Assets RHP has its regulatory licenses related to its hospitality and media business that makes it difficult for new companies to setup similar enterprises, but these aren’t a significant moat in themselves and is pretty common amongst peers.
  • Network Effects: The company’s properties are also not network-based, and do not benefit from other users getting on the system.

Based on these factors, a moat rating of 2 out of 5 is appropriate, indicating some competitive advantage but not wide protection from competition.

Financial Analysis

RHP’s financial statements provide insight into its current performance, but are complicated due to their REIT structure, so we will simplify the explanation:

Overview

RHP is showing strong signs of post-pandemic rebound, but is being affected by inflation and high interest rates. They are generating large revenues, but their profitability is coming under pressure and they will need to make a concerted effort to cut costs. However, its revenue drivers are resilient and are positioned to grow significantly in the coming decade.

  • Revenue: Shows strong growth driven by the return of group bookings and is steadily increasing in the past year. There has been a significant uplift in revenue but costs have also been surging.
  • Profitability: Their operating income has seen a rise in the past few years, but still remains lower than pre-pandemic levels. Margins have been somewhat volatile with rising interest rates, as well as their debt load putting a significant drag on profits.
  • Cash Flow: Free cash flow has been increasing from the year and their cash flows are adequate to meet current financial requirements, and also shows that cash flow is being affected by debt payments.

Key Financial Metrics:

  • Return on Equity (ROE): Has been consistently above average and is currently on a downtrend, but the company has a clear strategy to improve this by cutting costs.
  • Adjusted EBITDA: Has been increasing over the past few years with a high degree of consistency. However, this does not necessarily indicate profitability, because it excludes significant expenses like depreciation.
  • Leverage: Is significant, with more debt than equity on their balance sheets. This indicates a certain risk in their solvency, but the debt is not too high and is manageable as per management guidance.
  • Growth: RHP has good growth with current levels of demand, and is looking to improve this by better leveraging their properties. They have good sales projections for the coming decade.
  • Liquidity: RHP has decent liquidity and has ample access to more funding through the credit markets if required.

Recent Concerns / Controversies and Problems:

  • Interest rate hikes: RHP is also affected by interest rate increases as they will need to pay more interest on their debt, lowering profitability and also impacting cash flow projections for expansion of their facilities.
  • High Debt: The company is currently operating with quite high levels of debt. They will have to tackle this to ensure good stability for their business.
  • Inflation: Like other companies, RHP is also affected by high levels of inflation. The company will need to keep their costs under check and may even have to increase prices at some points to protect their profits.
  • Slow Pace of Recovery for Business Travel: Although there has been significant recovery in the overall tourism sector, but business travel is still not at pre-pandemic levels, and if the economy weakens, then this may cause a big dent in their revenue.

Management View:

  • The company has been proactively working to cut costs and improve efficiencies to tackle the inflationary pressures and reduce their debt over the next few years. They have also noted that they have excellent revenue generation strategies that have helped propel them forward, and that they expect to return to pre-pandemic levels very soon.
  • Management believes that the current financial situation poses no long term risk to their business as they have managed to secure long term contracts that give them some revenue stability.

Understandability: 2 / 5

Ryman’s business model is moderately complex to understand and is placed between simple and complex. While its hospitality core is fairly easy to understand, the nuances in the company’s financial structure and its focus on the MICE industry (Meetings, Incentives, Conferences, and Exhibitions), which include large conventions and events, make the analysis a bit more complicated. It is tough to find direct competitors that are focused on these type of properties. Their unique strategy, combined with complicated accounting for their REIT structure make it tough for the average investor to understand fully. For these reasons, an understandability rating of 2 out of 5 is appropriate.

Balance Sheet Health: 3 / 5

Ryman’s balance sheet is relatively healthy but has some points of concern.

  • Debt: RHP has a high amount of debt compared to its overall capital, and some investors are concerned about the company’s debt levels. However, the company is looking to reduce debt levels in the coming future, and has good cash flows to help in their efforts.
  • Cash: RHP has decent cash in hand which are also increasing year over year.
  • Other: They are also making significant amounts of capital expenditures to upgrade their existing properties as well as building new properties. This can affect their near-term financial performance.
  • Leases: The company leases a lot of properties and this impacts their long-term balance sheet, and is an important fact to consider while valuing their business.

Considering these factors, a rating of 3 out of 5 for balance sheet health is appropriate, indicating room for improvement, but also reflecting an acceptable level of financial security.